After an autumn flurry, is the UK housing market going to fall at last? | housing market

A Recession in the UK looks almost inevitable – but some estate agents have reported a buying frenzy and a flood of properties on to the housing market, as people try to move home before interest rates go up further to tame high inflation.

“Some buyers have made the decision to get in now before the next round of interest-rate rises, and that’s added a degree of urgency to the market in recent months,” says Lucian Cook, head of residential research at the estate agent Savills.

Knight Frank and Hunters are among the estate agents reporting more properties coming on to the market. Gareth Williams, managing director at Hunters, says: “The last two weeks have seen a significant uplift and the last week was Hunters’ best listing week of the year.”

“We are at a crossroads,” says Andrew Groocock, a regional partner at Knight Frank. “Nothing has dropped off yet. August was our busiest August for new listings for 10 years in London, and our busiest month since September 2020.”

But the economic circumstances look threatening. Even with the £2,500 price cap freeze promised by Liz Truss this autumn, energy bills will be double what they were last year, inflation remains just below 10%, real wages are falling and interest rates are expected to hit 3% by the end of the year. The Bank of England is expected to raise borrowing costs again this week to combat inflation, despite the darkening economic outlook, by at least 50 basis points from 1.75%. “For buyers, there’s a sense of ‘I’m going to do it now because I’ll get a better mortgage rate and I’ll probably be able to borrow a little bit more than I will in three, four or five months’ time ,’” says Groocock.

But people won’t pay a huge premium for property and will think twice before overstretching themselves, experts say, with a recession looking likely in the fourth quarter.

Despite the buying frenzy in some areas of the housing market, there are ample signs that it is coming off the boil. The official house price index showed annual growth of 15.5% in July, at a 19-year high, but the comparison is artificially inflated. Sales were unusually low in July 2021, because the stamp duty holiday introduced to prop up the market during the pandemic came to an end on 30 June.

According to Halifax, Britain’s biggest mortgage lender, the annual rate of house price growth dipped to 11.5% in August. The country’s biggest housebuilder, Barratt, provided further evidence of a slowdown in the housing market, saying the number of homes reserved each week until the end of August had fallen below the level of a year earlier, and was now lower than before the pandemic, partly because of “heightened macroeconomic uncertainty”.

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Shares in housebuilders have slumped over the past year, with Persimmon, Barratt and Taylor Wimpey down between 38% and 48% before the end of the help-to-buy scheme next spring. Yet many of the companies are sanguine, pointing to the chronic shortage of homes in the UK, and the improved energy efficiency of new homes, which they say will underpin demand.

The consultancy Capital Economics is forecasting a 7% drop in house prices over the next two years, and says demand is already falling sharply. Except for March and April 2020, when the pandemic forced a shutdown of the housing market, the balance of new buyer inquiries in the survey by the Royal Institution of Chartered Surveyors fell to its lowest level since 2008 in August.

With unemployment the lowest in almost 50 years, at 3.6%, and only expected to start rising in mid-2023 in the Bank of England’s latest forecast, most experts are expecting the housing market to slow, rather than crash. Jeremy Leaf, a north London estate agent, says: “I’m expecting a slowdown. There are fewer inquiries, and prices are already softening a bit. It’s becoming a more normal market, a return to what was prevailing before Covid.”

Savills is in the process of revising its forecast of a 1% decline in house prices next year, which could well be lowered, says Cook – “though, as things stand, not to anything like the degree seen during the housing market downturns of the early 1990s and 2008-09”. Prices fell by 19% over three and half years in the early 90s and by a similar amount in 18 months in the wake of the credit crunch, according to the Nationwide building society’s house price index.

As three-quarters of borrowers are on fixed-rate mortgage deals, and growing numbers are fixing for five years (rather than two), they are in a better position to ride out a rise in the cost of borrowing, says Cook. However, UK Finance figures show that 1.8m mortgage deals are scheduled to end next year and will need to be refinanced at a time of rising rates.

Renting is also becoming more expensive. Many tenants have been forced to opt for smaller properties – one- and two-bedroom flats – the property firm Zoopla reported last week, while new students in Manchester and other cities including Bristol, Glasgow and Edinburgh are having to commute from neighboring cities because of a university accommodation crisis.

Rents rise to record levels over the summer. Zoopla found that the average rent across the country has grown by £115 a month over the last year, reaching £1,051. Rent now makes up more than a third of the typical income of a single earner. The website Hometrack, which is part of Zoopla, believes that rental growth is close to peaking, running at an annual rate of 12.3% for the country as a whole, and at an “unsustainable” 17.8% in London, after a double-digit decline during the pandemic.

A candid head and shoulders portrait of Yasir Khan
Yasir Khan says it is ‘impossible’ to find something suitable to rent in London on benefits. Photographer: Yasser Khan

Yasir Khan, 40, lives in an 8 sq meter flat in Walthamstow, east London that has a shower, toilet and cooker crammed into it. When he lost his job in 2018, he became homeless and lived in a shelter until Hackney council found him the flat. The £811 rent comes out of his universal credit from him. He has severe depression and panic attacks, and has a fear of going outside. At the same time, he feels “trapped” in the tiny space, which he says is “as big as a prison cell”.

“I am struggling a lot, because I am on benefits and it’s quite impossible to find something suitable for myself,” he says. He is looking for a bigger one-bed flat, but there aren’t many properties available in London that he can afford, at £1,100 a month. He moved to London to be near his nine-year-old daughter, who lives with his former wife.

“Four million people rent in the private rental market. For them the next year is going to be a very worrying time,” says Henry Pryor, a buying agent. “Uncertainty is huge at the moment, people are worried about jobs. Mortgage lenders are more concerned about people who are self-employed, landlords want bigger deposits – this is what it looks like when the fizz comes out of the housing market.”

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